US Pay television had a relatively good year in 2015, losing just 0.4% of subscribers over 2014. This led many to state the fear of cord cutting was overstated. Not so fast. A closer look at the numbers paints a very different picture.

According to Leichtman Research, the US pay television industry lost just 385,000 subscribers in 2015. Cable slash their 2014 losses from 1.2M to 345,000, satellite providers added a modest 86,000, and telco lost 125,000 subscribers. This led analyst Craig Moffett to comment in February:

“The data simply doesn’t fit the story of accelerating secular decline that has so dominated discourse in the general press and on media earnings conference calls of late.”

Taking a close look at the data, it looks like cord cutting did slow a little in 2015, but only little!

To understand how pay TV has performed in the US over the last several years I started with Mr. Leichtman’s data for the years 2009 through 2015. His firm does not track all operators in the analysis, just the top 10. Consulting Nielsen numbers for the number of households with pay-TV subscription over the last two years, about 6.2% are missing from Mr. Leichtman’s estimates.

Adding in this 6.2% correction, the number pay TV households in the US peaked in 2013 at about 100.7 million and has declined to 100.0 million in 2015. This represents a small decline of just 0.7%. Certainly, looking at this number it would be sensible to conclude that cord-cutting was muted.

However, this neglects the fact that the number of households has been growing strongly over the last 6 years. According to ecomomagic.com (which collects and publishes US census data), the number of households has increased 3.1M since 2013 and 6M since 2009.

What does this mean for pay TV penetration? It peaked in 2010 at 88.9%, not 2013 when the number of subscribers peaked. Penetration in 2015 fell to 85%, down 4% over the last 6 years. In 2014 it fell 1.7% and in 2015 another 1%.

Accounting for new US households shows that the number of homes without pay TV has increased from 12.4M in 2010 to 17.7M in 2015, an increase of 5.3M. Had pay TV penetration remained at its peak in 2010, there would have been 104.6M pay TV subscribers in 2015. In other words, the industry has missed out on nearly 5M subscribers. With ARPU hovering at around $90, that equates to about $5B in missed revenue for 2015.

Where are the lost 5M homes going for their video entertainment? No prizes if you guessed online. Nielsen says there are now nearly 4M broadband only homes in the US, and 6.8M homes leveraging over-the-air broadcast and broadband.

In a way, it is wrong to portray the 5.3M increase in non-pay TV homes as a loss for the industry. Pay TV certainly wins a good proportion of the new homes as they become occupied. And this illustrates that new home formation is actually helping to hide how poorly US pay TV is doing. If there had been no new homes formed in the US since 2010 (total households remaining at 112.4M) there would have been 95.5M pay TV homes in 2015, not 100M!

Why it matters

2015 pay TV subscribers suffered only a small 0.4% decline in 2015.

Including new home formations, that decline increases to 1%.

Accounting for new homes shows the industry has missed out on 5M new subscribers and as much $30B in revenue since 2010.